The market of crypto assets is on the rise. The growth indications are undeniable, as the market cap has crossed 2.3 trillion. Bitcoin, unsurprisingly, has occupied the most significant chunk of this market.
We term its occupancy unsurprising as it has been the most prominent and representative asset in the crypto space. Often, we have seen a direct correlation between the rise of Bitcoin and the rise of the crypto-assets ecosystem. This time is also no exception. As we draft this article, we see that the price of Bitcoin is hovering near US$64,000.
The emergence of crypto has been a phenomenon for a little more than a decade, gaining significant steam over the past five or six years. Initially, it was viewed as a niche asset, enjoyed only by a certain group of digital and tech-savvy investors. However, that barrier has diminished recently. The US SEC and Canadian authorities have approved the public trading of Bitcoin spot ETFs, and many other countries are considering taking this step. Moreover, national authorities in many of these jurisdictions are also planning to introduce their digital currencies.
Altogether, there is enthusiasm and an environment of trust around digital assets and Bitcoin. And it is driving companies that are not in the blockchain space to adopt BTC in their treasury reserve. These companies belong to a range of industries, including automobile, software, gaming, payment, etc.
In the following segments, we will look into the reasons why these companies are adopting BTC in their reserves, the strategies they deploy to diversify their portfolios with digital assets, and what they have to say about their vision in the long term. We will also analyze whether the macro-scenario represents a sustainable, rising trend or merely a passing fad.
Exposure to Bitcoin: The ‘Why’ & ‘How’!
#1. Tesla
According to the latest information, Tesla’s digital asset holdings, consisting primarily of Bitcoin, remain unchanged. They were valued at US$184 million for the quarter that ended on March 31st, 2023, and remained the same for the quarter that ended on March 31st, 2024.
Apart from Bitcoin, the company holds some Dogecoins, the meme cryptocurrency it accepts for certain merchandise. However, the company terms the quantity as ‘minimal.’
Tesla invested US$1.5 billion in Bitcoin in Q1 2021, and by the end of Q2 2022, the company had converted nearly 75% of its Bitcoin into fiat currency. The filing showed that Tesla’s net digital assets holding had come down to US$218 million by the end of Q2 2022 from the US$1,261 million it had in the previous quarter. During that quarter, Tesla CEO Elon Musk was quoted saying:
“We are certainly open to increasing our bitcoin holdings in the future.”
However, the company had also said its Q2 year-on-year operating income was impacted by bitcoin impairment.
In Q2 2022, the company’s cash flow statement showed proceeds from digital asset sales in the range of US$936 million. This was only the second time the company recorded such proceeds. The only other time Tesla’s cash flow statement showed sales of digital assets was in Q1 2021 when the proceeds amounted to US$272 million.
Two Elon Musk quotes stand crucial in understanding the Company’s decision to hold and sell its Bitcoin assets. The first quote was as follows:
“The reason we sold a bunch of our bitcoin holdings was that we were uncertain as to when the Covid lockdowns in China would alleviate. So it was important for us to maximize our cash position, given the uncertainty of the Covid lockdowns in China.”
Therefore, it was not a judgment on Bitcoin’s usability or potential. It was rather a strategy for the company to optimize its liquidity in the uncertain times of the COVID lockdown.
On the vision of Tesla that drives it to have Bitcoins on its balance sheet, Elon Musk said:
“We may increase or decrease our holdings of digital assets at any time based on the needs of the business and on our view of the market and environmental conditions … We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash.”
#2. MicroStrategy
While Tesla remains stagnant with its Bitcoin holdings, MicroStrategy keeps adding to its stash. Latest reports suggest that during the first quarter of 2024, the company purchased more Bitcoin which took its net holding to a total of 214,400 BTCs, worth about US$13.6 billion.
MicroStrategy is perhaps the most unique entity among Bitcoin-holder businesses because its corporate strategy is partly based on acquiring and holding Bitcoin. Its total holdings of Bitcoin constitute nearly 1% of Bitcoin’s total circulating supply.
Apart from being an asset to hold for the future, Microstrategy’s Bitcoin holdings offer its equity holders the opportunity to gain exposure to the digital asset without having to hold it. The Microstrategy stock is equivalent to a Bitcoin derivative, which has gained traction after the US SEC’s approval of at least eleven Bitcoin spot ETFs.
Overall, during the latest quarter, Microstrategy’s software business registered double-digit revenue growth for subscription services. However, it still reported a net operating loss of US$53.1 million. The digital asset impairment charge was recorded at US$191.6 million.
#3. Nexon
Nexon’s involvement with Bitcoin is trendsetting. On the 288th of this year, the company, a well—known gaming publisher, became the first publicly traded Japanese company to invest in Bitcoin.
Nexon’s investment in Bitcoin was worth US$100 million, equivalent to JPY11.1 billion, representing less than 2% of the company’s total cash and equivalents. The company has traditionally believed in holding cash and equivalents on its balance sheet to generate interest. However, with uncertain interest rate forecasts and growing concerns about currency debasement, Nexon viewed Bitcoin as an asset with greater buying power, liquidity, and convenience.
While elaborating on the investment decision, the CEO of Nexon, Owen Mahoney, said:
“In this environment, we see BTC [Bitcoin] as a form of cash likely to retain its value, even if it is not yet widely recognized as such. While we won’t go into every feature of BTC (others do that better), some attributes stand out.”
Mahoney also highlighted Bitcoin’s scarcity factor, noting that it is an asset with only 21 million Bitcoins to ever exist, 85% of which have already been mined.
However, the initial market response to Nexon’s decision to invest in Bitcoin could be termed neutral. The stock only jumped 0.8% to an intraday high of JPY3,640 before closing at JPY3,610, the same as the previous day’s close.
#4. Metaplanet, Inc.
Another firm capitalizing on Bitcoin’s yielding potential is the publicly traded company, Metaplanet, Inc. Mmuch like MicroStrategy, it keeps increasing its Bitcoin holdings.
On July 16th this year, the company announced its latest bitcoin purchase, adding another 21.88 BTC to its portfolio for 200 million yen, or approximately US$1.26 million.
According to the latest estimates, the company’s portfolio now stands at 225.611 BTC, acquired for an average of 9,972,933 yen each, totaling 2.25 billion yen or $14.197 million. These acquisitions are part of the company’s well-thought-out strategy, which it calls the ‘Bitcoin for Treasury Asset Policy.’
Apart from the speed and consistency of purchases that match MicroStrategy’s strategy, Metaplanet has also copied MicroStrategy in issuing bonds to buy Bitcoin. As a firm with a relatively smaller capital and moderate profit turnover, Metaplanet’s decision to go all in on Bitcoin points to a long-term strategy to generate considerable profit and grow its capital significantly. With the price of Bitcoin fluctuating between the opposing forces of bear and bull markets, Metaplanet’s trust in Bitcoin as an investment reflects the credibility the digital asset has earned over the years.
#5. Square, Inc./Block
Square changed its name to Block in December 2021. Reportedly, the company has already amassed a substantial Bitcoin stack. It purchased 4,709 bitcoins in October 2020 and another 3,318 in early 2021. By the beginning of May, with the price of Bitcoin around US$59,000, the company’s Bitcoin holdings amounted to nearly US$4.7 billion.
As the purchase volume suggests, Block executes all these actions as part of a robust, well-formulated strategy. It started with a dollar-cost averaging (DCA) program. Since April of this year, the company has been earmarking 10% of its monthly Bitcoin-related gross profit to buy additional bitcoins. The company plans to continue this each month for the rest of 2024. To grasp the magnitude of this investment, it’s important to note that Block achieved a Bitcoin gross profit of US$80 million in the first quarter alone.
Most interestingly, Block has published a Bitcoin Blueprint for Corporate Vision, which not only explains its vision but also delves deeper into its purchase strategies. The company says:
“By allocating a portion of our monthly bitcoin gross profits to bitcoin investment on a predetermined and recurring cadence, we sidestep the challenges of market timing. The price of bitcoin can be highly volatile and hard to predict as its price action doesn’t always correlate with existing asset classes. We believe this approach enables us to optimize our long-term investment position while minimizing the price risks associated with attempting to aggregate less frequent, larger purchases.”
It is evident that Block is sincere in its approach and, therefore, cautious enough to optimize the investment.
#6. Meitu
Another company that has been boosting its treasury with Bitcoin is the Chinese technology company Meitu. Meitu’s cryptocurrency holdings have surged to approximately $100 million, propelled by strategic purchases, including a significant investment of $10 million in Bitcoin. This particular acquisition involved purchasing 175.67798279 Bitcoin units at an average price of around $57,000 each. This initiative is part of a broader investment strategy by Meitu, which views blockchain technology as a potential disruptor akin to the impact of the mobile internet on traditional industries.
Financially, Meitu has demonstrated substantial growth and profitability. For the year 2023, the company reported revenues amounting to RMB 2.7 billion, marking an impressive year-over-year increase of 29.3%. This growth is largely attributed to its core segments: image, video, and design products, which alone generated RMB 1.33 billion, growing by 52.8% compared to the previous year. This segment’s success is driven significantly by its paid subscription model, which now boasts over 9.11 million paid members.
The company’s adjusted net profit increased by 233.2% to RMB 370 million. Its advertising business also contributed notably, generating RMB 760 million in revenue, up 20.5% year over year.
Investment in Bitcoins: A Passing Fad or a Trend Emerging?
To understand the decisions to invest in crypto assets, we must go back a few years. In May 2022, the European Central Bank published a report titled ‘Decrypting Financial Stability Risks in Crypto Asset Markets.‘
The report, in its very initial observation, noted the trend. It admitted the ‘rising involvement of institutional investors’ in the crypto-asset ecosystem and the fact that despite the risks, investor demand for crypto-assets was on the rise.
Among the risks mentioned were the assets’ lack of intrinsic economic value or reference assets, high volatility and energy consumption, and association with financing illicit activities. Despite these concerns, investors were eager to capitalize on the potential for quick gains and the unique characteristics of crypto-assets, such as programmability. They also valued the benefits of portfolio diversification, especially from an institutional perspective.
The 2021 numbers proved that institutional investors’ interest in digital assets was increasing. 56% of European institutional investors surveyed by custody and execution services provider Fidelity Digital Assets indicated that they had some level of exposure to digital assets – up from 45% in 2020.
The question that arises now is whether it was a fad or whether the growth has been sustained. According to 2024 reports, Forbes claims to have accessed a note sent by Goldman Sachs to its clients, 19 companies with the highest blockchain and cryptocurrency exposure have significantly outperformed the broader market so far this year.
Such positive returns from BTC investments encourage companies to participate more in the crypto ecosystem. In March 2024, Goldman Sachs’ head of digital assets, Mathew McDermott, had the following to say when explaining the growth in Bitcoin prices:
“The price action … has still been driven by retails primarily. But it’s the institutions that we’ve started to see come in. You see, now the appetite is transformed.”
Another survey was conducted in Canada by KPMG and the Canadian Association of Alternative Assets & Strategies to gauge investor interest following ETF approvals. In 2023, four out of 10 institutional investors reported having some exposure to cryptocurrencies, an increase from 31 percent in 2021. Notably, one-third of the investors indicated that at least 10 percent of their portfolio was invested in crypto assets, compared to one-fifth of respondents two years earlier.
When asked about the reason for investing in crypto, 67 percent mentioned maturing market and custody infrastructure as driving factors, up from 14 percent in 2021, while 58 percent cited strong market performance.
This interest isn’t confined to institutional investors alone. A poll targeting financial advisors also highlighted a growing enthusiasm for recommending crypto-related opportunities to their clients. Conducted by the Digital Assets Council of Financial Professionals, the poll found that over a third (35 percent) of respondents now say they will encourage clients to invest in the digital assets space, up from 21 percent at the end of last year.
Overall, verifiable data indicates that the adoption of blockchain in institutional reserves is increasing. According to Goldman Sachs, the approval of Bitcoin ETFs has played a significant role in this trend. As institutional investors show greater interest, this may lead to Bitcoin reaching new heights.
Many industry analysts and system participants have also echoed Goldman Sachs officials’ statement. For instance, according to Nathan McCauley, CEO of Anchorage Digital, a crypto platform: “Traditional institutions were once sitting out; today, they are here in full force as the principal drivers of the crypto bull market.”
Explaining the nature of the interest shown by the institutional investors, the CEO of CF Benchmarks, the provider of the index for six of the ETFs, said:
“For institutions, bitcoin’s core appeal is the diversification potential it offers.”
Altogether, the adoption of BTC in a company’s treasury reserves has many factors driving it.
The US SEC approval of 11 spot Bitcoin ETFs has inspired trust. Anticipations around the debasement of fiat currencies in many countries across the world have led many to diversify into digital assets. Falling interest rates have also discouraged many from maintaining a large sum under the head of ‘Cash and Equivalents.’
Overall, the growing investments in digital assets clearly indicate a robust and enduring trend rather than a passing fad. These decisions are strategic and focused on long-term benefits, underscoring the real and sustained adoption of the technology.
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